BSE Capital Goods index sizzles on back of Capital Good Policy

In one of the fascinating moves by the current government in Power, the Cabinet approved for the first time ever a national capital good policy which intelligently addresses key concerns affecting the Capital Good Sector considered to be a leading indicator of economic growth in India. 

BSE capital Good index cheered the government policy more than the broader index Sensex as the sectoral index rose a whopping 8.78 percent. Sensex was up by almost 1.88 percent. Analyst will definitely struggle to find exactly when was the last time the BSE Capital Goods Index rose more than 8 percent in a single trading session.

Larson & Toubro Ltd (L&T) which enjoys the highest weight-age in the index is the sole reason behind such huge gains in the index. According to the BSE data L&T stock contributed 1060.92 points to the index gain of 1166 points on Thursday. That works to be almost 90 percent of the gains. Other capital good stocks that contributed to such out-performance of the sectoral index are BHEL (4.73 percent), Alstom T &D (4.18 percent), Siemens (3.41 percent)  & Thermax (3.19 percent). 

The national policy on capital goods will seek to reduce reliance on imported equipments and incentivise domestic production which in turn will help employment generation in India. 

The policy aims to increase the production of capital good three folds in almost 10 years from Rs. 2.3 lakh crore to 7.5 lakh crore in 2025. This may raise the direct and indirect employment from current 84 lakh to 3 crore. The policy excites the market with its potential to increase exports from current 27 percent of production to 40 percent.

Recent IIP numbers suggested contraction in capital goods production of 2.9 percent in FY16.